KARACHI: Bank lending to the private sector has shrunk to just Rs28 billion this fiscal year after plummeting 98 per cent compared to last year, central bank data showed on Tuesday.

The State Bank reported that from July 1 to May 19, the private sector borrowed a record low Rs27.9bn from banks compared to Rs1.414 trillion a year ago.

The economy has been facing a constant problem of a record-high interest rate of 21pc and headline inflation at 36.4pc. Average inflation is estimated to reach 30pc this fiscal year, which ends in June.

“There is no chance to run a business with such a high interest rate and an unprecedented 36pc inflation,” Aamir Aziz, who manufactures and exports finished textile products, told Dawn. He said textile exports had already started falling and feared that things would worsen in the coming months since millers had exhausted their cotton stocks.

“The country has produced five million cotton bales while the need is about 15 million bales. The country has no foreign exchange for imports and this is the reason that the private sector is out from the banks,” he said.

Bankers said interest rates were much higher than the policy interest rate of 21pc, depending on risks attached to borrowers. They said businesses couldn’t sustain in this scenario.

The financial sector believes that the State Bank may go for another increase to counter unrelenting inflation, while the International Monetary Fund is also critical of the existing interest rate.

A high interest rate has already started to take its toll, as most analysts and economists have estimated a negative growth rate in the current fiscal year.

However, the Pakistan Bureau of Statistics has reported the agriculture growth rate at 1.55pc even though the government had claimed $30bn in losses due to last year’s floods. The growth does not match such high losses.

Some analysts believe that the bureau’s data could result in a 0.29pc GDP growth, though many are still sure there will be no growth this time.

“We are facing a serious question of survival under the intensifying political and economic uncertainties, particularly when the IMF is silent over the release of its ninth review tranche,” a senior analyst said.

Pakistan needed significant financial help to come out of the current economic mess, he said but feared that China would not come to the rescue this time around.

Published in Dawn, May 31st, 2023